State of Connecticut

Notes to the Financial Statements

June 30, 2009

Note 19 Risk Management

The risk financing and insurance program of the State is managed by the State Insurance and Risk Management Board. The Board is responsible mainly for determining the method by which the State shall insure itself against losses by the purchase of insurance to obtain the broadest coverage at the most reasonable cost, determining whether deductible provisions should be included in the insurance contract, and whenever appropriate determining whether the State shall act as self-insurer. The schedule below lists the risks of loss to which the State is exposed and the ways in which the State finances those risks.

Risk Financed by
Purchase of
Commercial Self-
Risk of Loss Insurance Insurance
Liability (Torts):
-General (State buildings,
parks, or grounds) X
-Other X
Theft of, damage to, or
destruction of assets X
Business interruptions X
Errors or omissions:
-Professional liability X
-Medical malpractice
(John Dempsey Hospital) X
Injuries to employees X
Natural disasters X

For the general liability risk, the State is self-insured because it has sovereign immunity. This means that the State cannot be sued for liability without its permission. For other liability risks, the State purchases commercial insurance only if the State can be held liable under a particular statute (e.g. per Statute the State can be held liable for injuries suffered by a person on a defective State highway), or if it is required by a contract.

For the risk of theft, of damage to, or destruction of assets (particularly in the automobile fleet), the State insures only leased cars and vehicles valued at more than $100 thousand. When purchasing commercial insurance the State may retain some of the risk by assuming a deductible or self-insured retention amount in the insurance policy. This amount varies greatly because the State carries a large number of insurance policies covering various risks. The highest deductible or self-insured retention amount assumed by the State is $25 million, which is carried in a railroad liability policy.

The State records its risk management activities related to the medical malpractice risk in the University of Connecticut fund, an Enterprise fund. At year-end, liabilities for unpaid claims are recorded in the statement of net assets (government-wide and proprietary fund statements) when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. The liabilities are determined based on the ultimate cost of settling the claims, including an amount for claims that have been incurred but not reported and claim adjustment expenses. The liabilities are actuarially determined and the unpaid liability for medical malpractice is reported at its present value, using a discount rate of 5 percent. In the General Fund, the liability for unpaid claims is only recorded if the liability is due for payment at year-end. Settlements have not exceeded coverages for each of the past three fiscal years. Changes in the claims liabilities during the last two fiscal years were as follows (amounts in thousands):

Governmental Business-Type
Activities Activities
Workers' Medical
Compensation Malpractice
Balance 6-30-07 $ 382,128 $ 20,000
Incurred claims 115,558 3,291
Paid claims (85,067) (2,001)
Balance 6-30-08 412,619 21,290
Incurred claims 143,104 8,790
Paid claims (95,945) (4,856)
Balance 6-30-09 $ 459,778 $ 25,224